Free Insurance Licensing Life-Producer Practice Exam with Questions & Answers | Set: 2

Comprehensive and Detailed Step by Step Explanation:Insurance licensees in Maryland are required to report certain changes to the Maryland Insurance Administration (MIA):

Change of name (A):Must be reported promptly to ensure accurate licensure records.

Change of residence address (B):Also required for communication and compliance purposes.

Felony convictions (D):Mandatory disclosure to maintain transparency and evaluate fitness for licensure.

Change in financial status (C):Not required unless it directly affects the licensee’s ability to meet financial obligations tied to the license (e.g., bonding requirements).

References:Maryland Insurance Code §10-118, COMAR 31.03.01.

Comprehensive and Detailed Step by Step Explanation:Aninsurable riskmust meet specific criteria to ensure fair and financially viable coverage:

Chance of loss must be calculable (C):Correct. Insurers need statistical data to assess risk and determine premiums.

Loss must be intentional (A):Incorrect; intentional losses are not insurable.

Loss must be catastrophic (B):Incorrect; catastrophic losses (e.g., war or large-scale disasters) are often excluded or managed through reinsurance.

Large number of different loss exposures (D):A large number of similar, not different, exposures is required for risk pooling.

References:Maryland Insurance Principles, Actuarial Standards, and COMAR 31.09.14.

Comprehensive and Detailed Step by Step Explanation:Offering settlements below fair value (D)is prohibited as an unfair claims settlement practice under Maryland law. Insurers must handle claims in good faith and pay fair settlements based on policy terms.

Negotiating claims (A):Permitted when there are legitimate disputes over coverage or liability.

Denying claims (B):Allowed if based on valid policy exclusions or conditions.

Including arbitration provisions (C):Legal, provided they comply with state guidelines and are not coercive.

Unfair claims settlement practices include:

Misrepresenting policy provisions.

Failing to promptly investigate or settle claims.

Attempting to settle for less than reasonable amounts.

References:Maryland Insurance Article §27-303, Unfair Claims Practices Act, and COMAR 31.15.07.

Comprehensive and Detailed Step by Step Explanation:To be legally enforceable, a contract must meet the following requirements:

Offer and acceptance (A):One party must propose terms, and the other must agree to them.

Competent parties (B):Individuals must have the legal capacity to enter a contract (e.g., not minors or mentally incapacitated).

Consideration (C):Each party must provide something of value (e.g., money, services, or promises).

Written evidence (D)is not required for all contracts, as some verbal agreements are enforceable depending on the type of contract (except for specific cases like real estate).

References: Maryland Contract Law Principles.

Comprehensive and Detailed Step by Step Explanation:Premature distributions from an Individual Retirement Account (IRA) before age 59½ are subject to a10% penalty tax, in addition to regular income tax, unless an exception applies.

10% (B):Correct. This is the standard penalty for early withdrawals under IRS regulations.

5% (A):Too low and not applicable to IRA penalties.

20% (C):Refers to mandatory withholding for some plan distributions, not the penalty rate.

50% (D):Applies only to missed Required Minimum Distributions (RMDs), not early withdrawals.

Exceptions to the 10% penalty:

First-time homebuyers (up to $10,000).

Qualified education expenses.

Medical expenses exceeding a certain percentage of adjusted gross income (AGI).

References:IRS Publication 590-B, Maryland Retirement Plan Regulations, and COMAR 31.09.12.

Comprehensive and Detailed Step by Step Explanation:Group life insurance policies in Maryland typically include a conversion privilege allowing former employees to convert group coverage to an individual policy within a 31-day period after termination, regardless of premium payment status.

$50,000 under the group plan (A):Correct. During the 31-day conversion period, the original group coverage remains in effect. If the insured dies during this time, the death benefit is paid under the group plan.

$50,000 under the new policy (B and C):Incorrect, as the conversion policy does not become effective until the first premium is paid.

Nothing at all (D):Incorrect, as coverage is still active during the conversion period.

References:Maryland Insurance Article §15-403, Group Life Insurance Conversion Privileges, and COMAR 31.09.05.

Comprehensive and Detailed Step by Step Explanation:Boycottrefers to the refusal to engage in business dealings with a particular party as part of an unfair trade practice, often used to coerce or punish. It is prohibited under Maryland’s Unfair Trade Practices Act.

Boycott (C):Defined as an unfair method of competition when used in the insurance context.

Estoppel (A):A legal doctrine preventing someone from asserting a claim inconsistent with previous actions, unrelated to business refusal.

Injunction (B):A court order stopping specific actions, not related to refusal to do business.

Binder (D):Temporary insurance coverage, unrelated to trade practices.

References:Maryland Unfair Trade Practices Act, COMAR 31.15.03, and Maryland Insurance Code §27-205.

Comprehensive and Detailed Step by Step Explanation:

Qualified retirement plans are regulated by IRS rules:

Contributions cannot exceed IRS limits (C), which are updated annually.

Contributions are not arbitrarily determined by employers (A) or based on employee performance (D).

Employers may make varying contributions, invalidating (B).

References: IRS Regulations for Qualified Retirement Plans, Maryland Employee Benefits Guidelines.

Comprehensive and Detailed Step by Step Explanation:Rebatingoccurs when an insurance producer offers a portion of their commission, premium reductions, or other inducements to buyers that are not explicitly stated in the policy. It is prohibited under Maryland law to ensure fair competition and maintain ethical standards.

Rebating (D):Involves returning part of the commission or providing benefits not in the policy to incentivize a sale, violating Maryland Insurance Article §27-212.

Twisting (A):Refers to persuading a policyholder to lapse or replace a policy through misrepresentation, unrelated to commission-sharing.

Binding (B):Relates to confirming coverage but does not involve commissions.

Soliciting (C):Refers to seeking potential clients, not the unfair practice of rebating.

References:Maryland Unfair Trade Practices Act, COMAR 31.15.05, and Maryland Insurance Article §27-209.

Comprehensive and Detailed Step by Step Explanation:Qualified retirement plans are subject to federal rules governing contribution limits:

Contributionscannot exceed IRS limits (C), which are adjusted annually.

Employers may adjust amounts annually, invalidating (A).

Contributions vary by employee and do not require identical dollar amounts, making (B) incorrect.

Contributions are typically unrelated to work performance, invalidating (D).

References: IRS Qualified Retirement Plan Contribution Limits, Maryland Employee Benefits Guidelines.